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GERRI WILLIS, CO-HOST: Between the White House and the presidential candidates, everyone says they know how to fix the economy. But which plan will work? How high gas prices are hurting small-town America and increasing the struggle of small business. And why members of the military are having a tough time finding a job after leaving the service. The economy is issue #1, and we're all over it.

ISSUE #1 starts right now.

Hello, everyone. I'm Gerri Willis.

Ali Velshi will join us in just a moment.

First, your ISSUE #1 headlines.

A huge victory for 10,000 past and present African-American Walgreen workers. A federal judge in Illinois has signed off on Walgreen's plan to pay $24 million to settle a federal lawsuit alleging widespread racial bias. The Equal Employment Opportunity Commission accused the drugstore chain of discriminating against thousands of black retail management and pharmacy workers in hiring compensation and assignment decisions.

Yet another sign of the state of housing market, the Congress Department says new home sales fell for the fourth straight month in February. This time nearly 2 percent. It is the slowest pace in 13 years.

As expected, cash-strapped Ford is selling its luxury brand cars Jaguar and Land Rover to india's Tata Motors. The $2.3 billion deal is less than half the price that Ford paid for the companies.

ALI VELSHI, CO-HOST: Gerri, thank you.

Senator John McCain has made no secret of the fact that the economy is not issue #1 to him. Foreign policy is. Senator McCain is just minutes away from delivering what his campaign is calling a major foreign policy speech to the Los Angeles Foreign Affairs Council.

CNN's Dana Bash, part of the best political team on television, is live now in Los Angeles -- Dana.

DANA BASH, CNN CONGRESSIONAL CORRESPONDENT: Well, Ali, you set it up perfectly, because yesterday we talked about the speech John McCain pretty much had to give. It was one of many speeches on the economy, specifically the housing crisis.

What he's going to talk about here today is something that he wants to talk about, and that is the issue that they are hoping inside the McCain campaign is dominant, and that is national security. Now, this is going to be pretty comprehensive speech. We expect it to be about 40 minutes in length.

People looking for breaking news here might not find it, but make no mistake about it, it is a big speech in terms of John McCain laying out his world view, talking about his perspective, his experiences from his family, for example -- going back to his grandfather -- understanding the consequences of war, saying that he hates war. Trying to sort of, you know, give a little bit of context to the idea that he obviously does and will continue to say it's important to stay in Iraq, explaining that it's not because he wants to do it, because he thinks it's a moral responsibility.

But there are other very interesting markers, if you will, that John McCain is going to lay out here, particularly when it comes to the differences that he is going to make clear, that he has with President Bush on national security, whether it is climate change or whether it is reaching out to democracies. It's a little bit subtle, but make no mistake about it, you're going to hear him making pretty clear that he thinks any kind of go-it-alone strategy when it comes to national security, when it comes to foreign policy, is not the way to go. And he's even going to talk about the need for a league of democracies, he is going to call it, a league of democracies in order to make sure that countries who are like-minded in values really get together on the world stage.

So, again, what this is going to be is a benchmark really, for John McCain in terms of his perspective on a host of issues, whether it's China, whether it's Russia, Iraq or Afghanistan, but again, just his perspective, that he can be weighed against if -- if -- he does win the White House -- Ali.

VELSHI: Dana, I'm going to put this question to other guests later on today, but I want to ask you, as you speak to the people on the McCain campaign, we know our polls show that the economy is issue #1, but terrorism, Iraq, those issues, foreign policy, when you bring them all together, add up -- they bring up a close second.

What is the strategy with John McCain? Is he hoping that he can pull Americans over to understanding that his strength in that area is actually more important than perhaps the other candidates' focus on the economy?

BASH: There is no question, they are hoping that he is able to -- that -- they're hoping that he is able to make the argument that he, by far, has the best experience and would be the best to lead on national security. But they understand.

You know, the reason why your show is called ISSUE #1, they understand that that is the reality this election year. That's why he's trying very hard, frankly, to bone up on economic issues, trying very hard to make clear in speeches like he gave yesterday -- he'll give an economic plan early next month -- that he is somebody who is trying to focus on the economy, as well as national security. You know, it's clear just in listening to him talk and hearing the way he talks about both issues though, that national security is definitely his comfort zone -- Ali.

VELSHI: All right. Dana, we are going to be back with you.

Dana Bash is part of the best political team on television. We'll be bringing you Senator McCain's speech as soon as it begins.

Right now I'm joined by Roland Martin, CNN contributor, in Chicago; as well as Andy Serwer, the managing editor of "Fortune" magazine; and Janice Revell from "Money" magazine, to discuss this further.

John McCain didn't seem like his heart was in the economic speech that he was having yesterday. Let's talk a little bit about where his strength lies -- foreign policy. Is he going to be able to bring people around to the fact that is his topic, this is the one that he owns?

ROLAND MARTIN, CNN CONTRIBUTOR: Well, of course. I mean, look, he's a POW. He served in the military. Whether he faces Senator Barack Obama or faces Senator Hillary Clinton, the reality is he is going to have that advantage over them.

But the problem again is Americans are always focused on pocketbook issues when it comes to the election. And John McCain has to get stronger in that.

You know, I looked at his speech yesterday. I read it. You know, I understand the whole point of trying to -- "I'm a fiscal conservative." But the reality is, people didn't necessarily want to hear that. They want to hear, what are you going to do?

Now, the other point, Ali, we've got to focus on -- he could focus on foreign policy, but our foreign policy is also affecting our economy. "Vanity Fair" has a great article talking, are we going to spend $3 trillion on this war? He has to deal with that.

VELSHI: All right. Roland, thank you for that.

Janice, I want to ask you something here.

Who is -- Roland says Americans want to know who's fixing the problem. Who is fixing the problem? We've been hearing from everybody every day, whether it's the Treasury secretary, words from the Fed, the federal government, the candidates.

Who's actually going to get us out of this? JANICE REVELL, "MONEY" MAGAZINE: Right. Well, so far, we've seen the most action come from the Federal Reserve. I mean, they've done just about everything except pull out the kitchen sink in the last two or three weeks. They've made it extremely, extremely clear that they will do what it takes, but there is really only so far that they can go. Interestingly, John McCain has already said the economy is not his thing.

VELSHI: And we're going to actually pick that up in a second.

REVELL: Right.

VELSHI: But we're going to go back.

Andy, we'll get to you, and Roland as well.

Let's go back to Los Angeles, where John McCain is just about to talk about the thing he says is his thing, and that is foreign policy.

John McCain in Los Angeles.

(APPLAUSE)

SEN. JOHN MCCAIN (R-AZ), PRESIDENTIAL CANDIDATE: Thank you very much, John. Thank you for -- thank you for your kind words of introduction. Thank you for your long involvement in the issues that challenge this nation and its future.

I would like to thank Curtis Mack, our president, and Mary Morris, the vice president.

I'd like to thank all of you for coming to breakfast this morning. And a very impressive turnout. And I look forward to responding to your questions or comments that you might have for me at the conclusion of my remarks.

And again, thank you for inviting me this morning. Thank you for all of your participation in the affairs of this world which are -- to say the least, we live in interesting times.

When I was 5 years old, a car pulled up in front of our house in New London, Connecticut, and a Navy officer rolled down the window and shouted at my father that the Japanese had bombed Pearl Harbor. My father immediately left for the submarine base where he was stationed as commander of a United States submarine. I rarely saw him again for four years.

My grandfather, who commanded the carrier task force is in the Pacific under Admiral Halsey, came home from the war exhausted from the burdens he had borne and died the next day.

In Vietnam, where I formed the closest friendships of my life, some of those friends never came home to the country they loved so well.

I detest war. It might not be the worst thing to befall human beings, but it is wretched beyond all description.

When nations seek to resolve their differences by force of arms, a million tragedies ensue. The lives of a nation's finest patriots are sacrificed. Innocent people suffer and die. Commerce is disrupted. Economies are damaged. Strategic interests shielded by years of patient statecraft are in danger as the exigencies of war and diplomacy conflict.

Not the valor with which it is fought, nor the nobility of the cause it serves can glorify war. Whatever gains are secured, it is loss the veteran rembers most keenly.

Only a fool or fraud sentimentalize the merciless reality of war. However --- however heady the appeal of a call to arms, however just the cause, we should still shed a tear for all that is lost when war claims its wages from us.

I am an idealist. And I believe it is possible in our time to make the world we live in another, better, more peaceful place, where our interests and those of our allies are more secure in American ideals that are transforming the world, the principles of free people and free markets advance even further than they already have.

But I am, from hard experience and the judgment it informs, a realistic idealist. I know we must work very hard and very creatively to build new foundations for a stable and enduring peace.

We cannot wish the world to be a better place than it is. We have enemies for whom no attack is too cruel and no innocent life safe, and who would, if they could, strike us with the world's most terrible weapons.

There are states that support them and which might help them acquire those weapons because they share with terrorists the same animated hatred for the West and will not be placated by fresh appeals to the better angels of their nature. This is the central threat of our time, and we must understand the implications of our decisions on all manner of regional and global challenges that could have for our success in defeating it.

President Harry Truman once said of America, "God has created us and brought us to our present position of power and strength for some great purpose." In his time, that purpose was to contain communism and build the structures of peace and prosperity that could provide safe passage through the Cold War. Now it is our turn.

We face a new set of opportunities, and also new dangers. The developments of science and technology have brought us untold prosperity, eradicated disease and reduced the suffering of millions. We have a chance in our lifetime to raise the world to a new standard of human existence. Yet, these same technologies have produced grave new risks -- army-infused zealots with the ability to murder millions of innocents and producing a global industrialization that can, in time, threaten our planet.

To meet this challenge requires understanding the world we live in and the central role the United States must play in shaping it for the future. The United States must lead in the 21st century, just as in Truman's day. But leadership today means something different than it did in the years after World War II, when Europe and the other democracies were still recovering from the devastation of war and the United States was the only Democratic superpower.

Today we are not alone. There is a collective powerful voice of the European Union, and there are the great nations of India and Japan, Australia and Brazil, South Korea and South Africa, Turkey and Israel, to just name a few of the leading democracies. There is also the increasingly powerful nations of China and Russia that wield great influence in the international system.

In such a world where power of all kinds is more widely and evenly distributed, the United States cannot lead by virtue of its power alone. We must be strong politically, economically and militarily. But we must also lead by attracting others to our cause by demonstrating once again the virtues of freedom and democracy by defending the rules of international civilized society, and by creating the new international institutions necessary to advance the peace and freedoms that we all cherish.

Perhaps, above all, leadership in today's world means accepting and fulfilling our responsibilities as a great nation. One of those responsibilities is to be a good and reliable ally to our fellow democracies.

We can't build an enduring peace based on freedom by ourselves, and we do not want to. We have to strengthen our global alliances as the core of a new global compact, a league of democracies, that can harness the vast influence of the more than 100 democratic nations around the world to advance our values and defend our shared interests.

At the heart of this new compact must be mutual respect and trust. Recall the words of our founders in the Declaration of Independence that we pay "decent respect to the opinions of mankind." Our great power does not mean we can do whatever we want, whenever we want, nor should we assume we have all the wisdom and knowledge necessary to succeed. We need to listen. We need to listen to the views and respect the collective will of our Democratic allies.

When we believe international action is necessary, whether military, economic or diplomatic, we will try to persuade our friends that we are right. But we, in return, must be willing to be persuaded by them.

America must be a model citizen if we want others to look to us as a model. How we behave at home affects how we are perceived abroad.

We must fight the terrorists, and at the same time defend the rights that are the foundation of our society. We can't torture or treat inhumanely suspected terrorists we have captured.

(APPLAUSE) I believe we should close Guantanamo and work with our allies. And work with our allies to forge a new international understanding on the disposition of dangerous detainees under our control.

There is such a thing as international good citizenship. We need to be good stewards of our planet. We need to be good stewards of our planet and join with other nations to help preserve our common home.

The risks of global warming...

(APPLAUSE)

The risks of global warming have no borders. We and the other nations of the world must get serious about substantially reducing greenhouse gas emissions in the coming years, or we will hand off a much diminished world to our grandchildren.

(APPLAUSE)

We need a successor to the Kyoto treaty, a cap-and-trade system that delivers the necessary environmental impact in an economically responsible manner. We Americans must lead by example and encourage the participation of the rest of the world, including, most importantly, the developing economic powerhouses of China and India.

(APPLAUSE)

Four and a half decades ago, John Kennedy described the people of Latin America as our firm and ancient friends, united by history and experience and by our determination to advance the values of American civilization. With globalization, our hemisphere has grown closer, more integrated and more interdependent.

Latin America today is increasingly vital to the fortunes of the United States. Americans north and south share a common geography and a common destiny. The countries of Latin America are the natural partners of the United States and our northern neighbor, Canada. Relations with our southern neighbors must be governed by mutual respect, not by an imperial impulse or by anti-American demagoguery.

The promise of North, Central and South America, life is too great for that. I believe the Americas can and must be the model for a new 21st century relationship between North and South.

Ours can be the first completely Democratic hemisphere where trade is free across all borders, where the rule of law and the power of free markets advance the security and prosperity for all. Power in the world today, my friends, is moving east.

The Asia-Pacific region is on the rise. Together, with our Democratic partner of many decades, Japan, we can grasp the opportunities present in the unfolding world in this century can become safe. Both American and Asian, both prosperous and free.

Asia has made enormous strides in recent decades. Its economic achievements are well known. Less known is that more people live under democratic rule in Asia than in any other region in the world.

Dealing with a rising China will be a central challenge for the next American president. Recent prosperity in China has brought more people out of poverty faster than during any other time in human history.

China's newfound power implies responsibilities. China could bolster its claim that it is peacefully rising by being more transparent about its significant military buildup, by working with the world to isolate pariah states such as Burma, Sudan and Zimbabwe, and by ceasing its efforts to establish regional forums and economic arrangements designed to exclude America from Asia.

China and the United States are not destined to be adversaries. We have numerous overlapping interests and hope to see our relationship evolve in a manner that benefits both countries. And in turn, the Asia-Pacific region and the world. But until China moves toward political liberalization, our relationship will be based on periodically shared interests rather than the bedrock of shared values.

The United States did not single handedly win the Cold War. The transatlantic alliance did, in concert with partners around the world.

The bonds we share with Europe in terms of history, values, and interests are unique. Americans should welcome the rise of a strong, confident European Union as we continue to support a strong NATO.

The future of the transatlantic relationship lies in confronting the challenges of the 21st century worldwide -- developing a common energy policy, creating a transatlantic common market tying our economies more closely together, addressing the dangers posed by Russia, and institutionalizing our cooperation on issues such as climate change, foreign assistance and democracy promotion. We should start by ensuring that the G8, the group of eight highly industrialized states, becomes again a club of leading market democracies.

It should include Brazil and India, but exclude Russia. Rather than tolerate Russia's nuclear blackmail or cyber attacks, western nations should make clear that the solidarity of NATO from the Baltic to the Black Sea is indivisible and that the organization's doors remain open to all democracies committed to the defense of freedom.

(APPLAUSE)

While Africa's problems -- poverty, corruption, disease and instability -- are well known, we must refocus on the bright promise offered by many countries on that continent. We must strongly engage in a political, economic and security level with friendly governments across Africa, but insist on improvements in transparency and the rule of law.

Many African nations will not reach their true potential without external assistance to combat entrenched problems such as HIV/AIDS that afflict Africans so disproportionately. I will establish the goal of eradicating malaria on the continent, the number one killer of African children under the age of 5. In addition to saving millions of lives in the world's poorest regions, such a campaign would do much to add luster to America's image in the world.

We also share an obligation with the world's other great powers to halt and reverse the proliferation of nuclear weapons. The United States and the international community must work together and do all in our power to contain and reverse North Korea's nuclear weapons program, and to prevent Iran, a nation whose president has repeatedly expressed a desire to wipe Israel from the face of the earth, from obtaining a nuclear weapon.

We should work to reduce nuclear arsenals all around the world starting with our own. Forty years ago, the five declared nuclear powers came together in support of the Nuclear Non-Proliferation Treaty and pledged to end the arms race and move toward nuclear disarmament. The time has come to renew that commitment.

We do not need all the weapons currently in our arsenal. The United States should lead a global effort at nuclear disarmament consistent with our vital interests and the cause of peace.

If we are successful in pulling together a global coalition for peace and freedom, we lead by shouldering our international responsibilities and pointing the way to a better and safer future for humanity. I believe we will gain tangible benefits as a nation. It will strengthen us to confront the transcendent challenge of our time, the threat of radical Islamic extremism.

This challenge is transcended, not because it's the only one we face. There are many dangers in today's world, and our foreign policy must be agile and effective at dealing with all of them. But the threat posed by the terrorists is unique.

They alone devote all their energies and indeed their very lives to murdering innocent men, women and children. They alone seek nuclear weapons and other tools of mass destruction, not to defend themselves, or to enhance their prestige, or to give them a stronger hand in world affairs, but to use against us, wherever and whenever they can.

Any president who does not regard this threat as transcending all others does not deserve to sit in the White House, for he or she...

(APPLAUSE)

For he or she does not take seriously enough the first and most basic duty a president has to protect the lives of the American people.

We learned through the tragic experience of September 11th that passive defense cannot alone protect us. We must protect our borders. But we must also have an aggressive strategy of confronting and rooting out the terrorists wherever they seek to operate and deny them bases in failed or failing states. Today, al Qaeda and other terrorist networks operate across the globe seeking out opportunities in Southeast Asia, Central Asia, Africa, and in the Middle East. Prevailing in this struggle will require far more -- far, far more than military force. It will require the use of all elements of our national power -- public diplomacy, development assistance, law enforcement training, expansion of economic opportunity, and robust intelligence capabilities.

I have called for major changes in how our government faces the challenge of radical Islamic extremism by much greater resources for and integration of civilian efforts to prevent conflict and to address post-conflict challenges. Our goal must be to win the hearts and minds of the vast majority of moderate Muslims who do not want their future controlled by a minority of violent extremists.

In this struggle, scholarships will be far more important than smart bombs. We also need to build the international structures...

(APPLAUSE)

We also need to build the international structures for a durable peace in which the radical extremists are gradually eclipsed by the more powerful forces of freedom and tolerance. Our efforts in Iraq an Afghanistan are critical in this respect, and cannot be viewed in isolation from our broader strategy. In the troubled and often dangerous region they occupy, these two nations can either be the source of extremism and instability, or they can in time become pillars of stability, tolerance and democracy.

For decades in the greater Middle East, we had a strategy of relying on autocrats to provide order and stability. We relied on the shah of Iran and autocratic rulers of Egypt, the general of Pakistan, the Saudi royal family, and even for a time, on Saddam Hussein.

In the late 1970s, that strategy began to unravel. The shah was overthrown by the radical Islamic revolution that now rules in Tehran. The ensuing ferment in the Muslim world produced increasing instability. The autocrats clamped down with ever greater repression, while also surreptitiously aiding Islamic radicalism abroad in the hopes that they would not become its victims.

It was a toxic and explosive mixture. The oppression of the autocrats blended with the radical Islamist dogmatic theology to produce a perfect storm of intolerance and hatred. We can no longer delude ourselves that relying on those outdated hitocracies (ph) is the safest bet. They no longer provide lasting stability, only the illusion of it.

We must not act rashly or demand change overnight. But neither can we pretend the status quo is sustainable, stable, or in our interest. Change is occurring, whether we want it to or not. The only question for us is, whether we shape this change in ways that benefit humanity or let our enemies seize it for their hateful purposes. We must help expand the power and reach of freedom using all -- many of our strengths as a free people. This is not just idealism. It is the truest kind of realism. It is the democracies of a world that will provide the pillars upon which we can, and must, build an enduring peace.

If you look at the great arc that extends from the Middle East through central Asia and the Asian subcontinent all the way to southeast Asia, you can see those pillars of democracy stretching across the entire expanse from Turkey and Israel, to India and Indonesia. Iraq and Afghanistan lie at the heart of that region. And whether they eventually become stable democracies themselves or are allowed to sink back into chaos and extremism will determine not only the fate of that critical part of the world, but our fate as well. That is the broad strategic perspective through which we must view our efforts in Iraq an Afghanistan.

Many people ask, how should we define success? How should we define success? Success in Iraq an Afghanistan is the establishment of a peaceful, stable, prosperous democratic state that pose no threat to neighbors and contribute to the defeat of terrorists.

It is the triumph of religious tolerance over violent radicalism. Those who argue that our goals in Iraq are unachievable are wrong, just as they were wrong a year ago when they declared the war already lost in Iraq. Since June 2007, sectarian and ethnic violence in Iraq has been reduced by 90 percent. Overall civilian deaths have been reduced by more than 70 percent. Deaths of coalition forces have fallen by 70 percent.

A dramatic reduction in violence has opened the way for a return to something approaching normal, political and economic life for the average Iraqi. People are going back to work, markets are open, oil revenues are climbing and inflation is down. Iraq's economy is expected to grow by roughly 7 percent in 2008. Political reconciliation is occurring across Iraq at the local and provincial grass-roots level. Sunni and Shia, chased from their homes by terrorists and sectarian violence, are returning. Political progress at the national level has been far, far too slow, but there is progress.

Critics say that the surge of troops isn't a solution in itself. That we must make progress toward Iraqi self-sufficiency. I agree. Iraqis themselves must increasingly take responsibility for their own security and they must become responsible, political actors.

It does not follow from this, however, that we should now recklessly retreat from Iraq, regardless of the consequences. We must take the course of prudence and responsibility and help Iraqis move closer to the day when they no longer need our help. That is the root of responsible statesmanship.

We have incurred a moral responsibility in Iraq. It would be unconscionable -- it would be an unconscionable act of betrayal, a stain on our character as a great nation, if we were to walk away from the Iraqi people and consign them to the horrendous violence, ethnic cleansing and possibly genocide that would follow a reckless, irresponsible and premature withdrawal. Our critics say America needs to repair its image in the world. How can they argue at the same time for the morally reprehensible abandonment of our responsibilities in Iraq? Those who claim we should withdraw from Iraq in order to fight al Qaeda more effectively elsewhere are making a dangerous mistake.

Whether we're there before or not is immaterial. Al Qaeda is in Iraq now, as it is in the borderlands between Pakistan and Afghanistan, in Somalia and in Indonesia. If we withdraw prematurely from Iraq, al Qaeda in Iraq will survive, proclaim victory and continue to provoke sectarian tensions that, while they have been subdued by the success of the surge, still exist -- still exist -- as various factions of Sunni and Shia have yet to move beyond their ancient hatreds and are ripe for provocation by al Qaeda. Civil war in Iraq could easily descend into genocide and destabilize the entire region as neighboring powers come to the aid of their favorite factions.

I believe a reckless and premature withdrawal would be a terrible defeat for our security interests and our values. Iran will also view our premature withdrawal as a victory and the biggest state supporter of terrorists, a country of nuclear ambitions and state of desire to destroy the state of Israel, will see its influence in the Middle East grow significantly. These consequences of our defeat would threaten us for years. And those who argue for it, as both Democratic candidates do, are arguing for a course that would eventually draw us into a wider, more difficult war that would entail far greater dangers and sacrifices than we have suffered to date.

I do not argue against withdrawal anymore than I argued several years ago for the change in tactics and additional forces that are now succeeding in Iraq. Because I am somehow indifferent to war and the suffering it inflicts on too many American families, I hold my position because I hate war and I know very well and very personally how grievous its wages are. But I know, too, that we must sometimes pay those wages to avoid paying even higher ones later on.

I run for president because I want to keep the country I love and have served all my life safe and to rise to the challenges of our times, as generations before us rose to theirs. I run for president because I know it is incumbent on America, more than any other nation on earth, to lead in building the foundations for a stable and enduring peace. A peace built on the strength of our commitment to it, on the transformative ideals on which we were founded. On our ability to see around the corner of history and on our courage and wisdom to make hard choices. I run because I believe as strongly as I ever have that it is within our power to make in our time another better world than the world we inherited.

Thank you very much.

ALI VELSHI, CNN ANCHOR: And that is John McCain making his first major foreign policy speech as the presumptive Republican nominee in Los Angeles, talking about foreign policy, not the economy. He had a speech on the economy and housing yesterday. Today he is talking about the issue that he is trying to convince people that he is the leader on, he is the expert on.

And now we're going to go over to Bill Schneider, who's been listening in on this speech, Dana Bash, the whole political team -- the best political team in television has been following this. But, Bill Schneider, you've been following the polling, the numbers, what Americans are feeling. John McCain would really like Americans to believe this is the number one issue and that he is the number one person to handle it.

Bill.

WILLIAM SCHNEIDER, CNN CORRESPONDENT: Yes, and he has a problem, he has a burden in this campaign. He's the nominee of a party with a very unpopular president, President Bush, and no particular policy is less popular than President Bush's policy of war in Iraq. The surge policy that Bush called for last January of 2007 is, even though a lot of Americans think the situation is more secure, Americans have not embraced his policies in Iraq. And that's a big burden for John McCain.

If there was message in this speech, his message was, I'm not George W. Bush. I support his policy in Iraq. I support the surge. I support -- I think it's working there. I argue against withdrawal. But the whole point of this speech was to make subtle differentiations between himself and President Bush.

I don't know if he succeed, but he did it on very personal terms. He said, I hate war. I know war. I have been to war. I have suffered. He was five and a half years, of course, in a prison camp -- a prisoner of war camp in Vietnam. So he talks from his own personal experience and he argues that the United States has to keep its commitment to Iraq in order to prevent a wider and more terrible war.

So it is an interesting way of try and get out from under the burden of defending an unpopular president and an unpopular war.

VELSHI: It's a burden that he's had for a long time, Bill. In your experience, having looked at numbers for so long, has he at any point effectively succeeded at saying, I don't like war but I understand war and I understand foreign policy and that this isn't the Bush administration? Is that -- has he got some chance of having that resonate with voters?

SCHNEIDER: Well, right now the polling indicates that the race between McCain and either Clinton or Obama would be very close. It would be virtually a tie. It's too close to call. That should not be happening with a president who's approval rating is down close to 30 percent, with a war that barely a third of Americans support, any Republican nominee should be in the soup. They should be in very serious trouble right now.

But McCain is not an incumbent. He's not President Bush running for re-election. He's not the vice president running to succeed him the way Bush's father ran to succeed Ronald Reagan. So a lot of people don't instinctively link John McCain, who once opposed George Bush back in 2000, they don't instinctively associate him with the Bush administration. The Democrats have to try to make the argument that a McCain victory would be a third term for George Bush. And I'm certain they are going to try to do that.

In a way, this speech today was a preemptive strike because he was saying, there are interesting and subtle differences between his foreign policy and that of President Bush. He believes in the Bush doctrine, that the best way to protect the security of the United States is to promote democracy in the world. But he would approach it in a less unilateral way, with less resort to force, more multi- lateralism, and it would be less cynical without allying ourselves with autocrats, he says. So it would be some subtle differences here, but the indications are, so far, he has limited the burden of being the candidate of George Bush's party.

VELSHI: All right, Bill Schneider, thank you very much, our senior political analyst.

This is becoming a very interesting issue because our numbers and Bill's numbers that he keeps bringing us indicate that the economy is issue number one. John McCain's strengths lie elsewhere. And he is really trying to underscore those.

Let's bring our panel back. Roland Martin joins us from Chicago, CNN contributor. Janice Revell from "Money" magazine is here. Andy Serwer of "Fortune" is with us. And, of course, Gerri Willis is back with us.

Gerri, this is issue number one. That's what this show is. That's what the topic is. The issue number one for Americans is the economy. How is John McCain continuing to go forward talking about something else?

You know, what's interesting about this is that I think John McCain is saying, hey, I want to be the nation's CMO, it's chief marketing officer. You remember President Bush said, I want to be the chief executive. I'm going to lead and people will come to me with information and I'll make all the executive decisions.

McCain is saying, I want to win the hearts and minds of people around the planet. We want a league of democracies. He wants people to think well of America and this is something new and something different.

VELSHI: Tie that back to the economy, Andy. How does he do that? We know you and Gerri have been working on a special that will be on on CNN at 8:00 p.m. Eastern this Friday about the mortgage meltdown, about houses. This is the thing that Americans seem to be worrying about every day.

ANDY SERWER, MANAGING EDITOR, "FORTUNE": It's not John McCain's strong suit, Ali, and I think that showed a little bit yesterday when we talked and then listened to him in his remarks to Hispanic businessmen. And he suggested that maybe the government should not be bailing out homeowners and lenders as well. And I think that that's tone deaf. I mean he's going to have a lot of problems with that. I think Rowland suggested that.

The thing is, some of what he said, I think, was dead-on, which is that homeowners have some responsibility themselves. That doesn't play well either, though, unfortunately. So in terms of navigating the political waters, I think he's going to have to do a better job and he'd better step up with his political adviser, his economic advisers, like Phil Graham, have got to steer him through these difficult waters.

VELSHI: Hey, Roland, I mean, the Democrats have been handing up gift day after day because they have an ongoing nomination battle. So we have that much more to talk about. Now John McCain is talking, because he's the presumptive nominee, of the things that are sort of bigger than just the nomination battle. Is he succeeding? Is he going to resonate with speeches like this on topics like this or does he have to appeal to the stuff that's in the headlines every day?

ROLAND MARTIN, CNN CONTRIBUTOR: Well, I think he does have to, again, appeal to the pocketbook issues. But I do want to touch upon some things, Ali, that he talked about in the speech that tie in to the economy.

First and foremost, he talked about the importance of the southern hemisphere, the ability to be able to focus on trade with democracies. Now what's interesting, he mentioned Canada, he also mentioned Latin America, but he didn't mention Cuba. And so that jumped out at me.

Also, when it comes to money, he talks about China. He spent a lot of time talking about China as a natural partner. And I find that to be interesting because, on one hand, we condemn Cuba because they're communists, because of human rights, but he made no mention of those particular issues with China. He also did not call for democracy in China. He called for political liberalization. That's basically the same thing, but he didn't want to go that far.

And what also jumped out when it came to China, he recognized that, look, a lot of our capital is tied up in China. We have to be very close with them as well. And so all of this was deemed a foreign policy speech. He didn't touch on that.

Lastly, Ali, global warming. He's got to have a lot of issues with Republicans on global warming, but he said America must be a leader in this particular area, pulling in India and China as well. So although this was a foreign policy speech, he also touched on some important economic issues in this speech.

VELSHI: Yes, you brought that -- that's an interesting point, that global warming is sort of poking its head out as an issue in this election. I'm sort of waiting for it to bust through and John McCain's discussion about it may help that.

Janice, one of the things that's kind of interesting here is, when he does talk about the world, it does remind me that from an issue number one, from a money perspective, it is a big world out there. We are very concerned about the mortgage crisis, the credit crisis. But there are parts of the world that are doing very well.

One of the points that you brought out that I'm sure gets buried very often is that there are -- there's a silver lining to all of this situation that we're in financially. Our financial crisis. What is that?

JANICE REVELL, "MONEY" MAGAZINE: Right. Absolutely. I think, you know, what gets lost in all of this is that this can be actually an excellent time to be investing in the stock market. I mean the stock market, I don't know if we've hit a bottom. Nobody knows if we've hit a bottom. But eventually we will hit a bottom. And if you have a time horizon of five years, 10 years, history has shown repeatedly that if you are buying now, then you will be handsomely rewarded. It's the old saying, you know, buy low, sell high. I mean, you know, we're low.

VELSHI: Gerri reminds people of this all the time, then (ph) don't play the markets.

WILLIS: Well, it's a great point to make right here. I think people are really afraid. We're getting e-mails here every single day about people who are really worried about their money and we keep telling them, long-term, long-term the market should come back.

VELSHI: Right. All right. We will visit back with you guys in a little bit. We're going to take a break on ISSUE NUMBER ONE. We were continuing to follow the economy, which is issue number one. We're going to bring you more analysis of John McCain's speech. Stay with us. We'll be right back on CNN.

(COMMERCIAL BREAK)

WILLIS: Treasury Secretary Henry Paulson was out and about this morning sharing his views on the economy and talking up the solutions he feels will put the economy back on track. CNN's senior correspondent Allan Chernoff is here.

Allan, great to see you. What did he say?

ALLAN CHERNOFF, CNN CORRESPONDENT: Gerri, he made some extremely important points that all taxpayers have to be concerned about because there's been a lot of outrage that the federal government, using our taxpayer money, has basically orchestrated the buyout of Bear Stearns, putting $30 billion of our money at risk in that deal. The Federal Reserve also has been letting security firms borrow cheap money from the central bank. A right that only more heavily regulated, commercial banks usually have.

So now the Treasury secretary is saying, securities firms are not going to be getting something for nothing. Meaning the cheap money that they've been able to borrow from the Fed. He's saying they should be subject to more regulation. He's also arguing that the government needs better access to the financials of security firms, some of which have been engaged in very, very complicated billion dollar transactions that have been hiding the true nature of the risk they've taken on. Hardly any of us realize just how immeshed in the subprime mortgage mess the major Wall Street firms had actually gotten.

So the Treasury secretary is also warning that the cheap money the Fed is offering to securities firms will not last forever. It is only temporary.

Gerri.

WILLIS: Interesting stuff. Let's talk about the housing market for a moment. You know, Paulson has been the president's point man on housing. He's announced most of the major initiatives. Did he have anything to say about housing at this point?

CHERNOFF: Yes. He said housing is definitely issue number one when it comes to the economy, saying it's a huge risk. But he argued, it should not come as much of a surprise that we're in so much trouble. He says it was almost inevitable that the housing bubble would burst.

(BEGIN VIDEO CLIP)

HENRY PAULSON, TREASURY SECRETARY: This downturn was precipitated by unsustainable home price appreciation which was particularly pronounced in a relatively few regions. A correction was inevitable and the sooner we work through it with a minimum of disorder, the sooner we will see home values stabilize, more buyers return to the housing market, and housing will again contribute to economic growth.

(END VIDEO CLIP)

CHERNOFF: That's not going to happen without plenty of pain. Paulson points out that the federal government is injecting money into the mortgage market through the federal home loan banks, as well as through Freddie Mac and Fannie Mae, the government sponsored entities that buy mortgages, freeing up cash for bankers to make new home loans.

But Paulson is warning that speculators in housing are not going to be helped. It's people who are getting squeezed by rising interest rates on their mortgages whom the government wants to give a hand. And Paulson said also legislation is in the works to stabilize the mortgage market. Gerri, common words, but he says there's going to be more trouble.

WILLIS: There's going to be more trouble. You know what's so interesting here, the administration has been heavily, heavily criticized for some of the steps they have taken to help individuals. That those steps haven't gone far enough. Is there any hope that any of this will really go to individuals who are struggling with mortgages right now? CHERNOFF: Well, he's saying the government wants to help many individuals. He pointed out that there are 7 million subprime mortgages out there. The subprimes are really accounting for the bulk of the problems that we're seeing right now. He wants to help people who are getting squeezed, who thought they could afford their mortgage, all of a sudden, boom, rates go up, they have an adjustable. You are the expert about that. You know the pain.

WILLIS: That's happened to so many.

CHERNOFF: But, he saying, the speculators, in fact he even mentioned the people who are willing to actually walk away from a home, just like that, just because all of a sudden they can't afford the mortgage, he doesn't want to help them. He does not want to . . .

WILLIS: No speculator help here, that's what I've seen.

CHERNOFF: Yes, he doesn't want to give out that moral risk there.

WILLIS: Allan, thank you for that.

VELSHI: All right, Gerri, thanks.

Coming up next, stay with us, we're going to tell you what President Bush just said minutes ago about the state of the U.S. economy. Here's a hint, it's about those rebate checks that many of you are about to get. Stay with us. You are watching ISSUE NUMBER ONE.

(COMMERCIAL BREAK)

VELSHI: Issue number one is the economy. We didn't make that up. You told us. Americans told us it's issue number one. President Bush, at a conference, a small business speech in northern Virginia, has just said that as a result of the economic stimulus checks that will be going out starting the beginning of May, the economy is going to come back better than ever before. I just want to run through my guests here and get their comments on it. Janice Revell from "Money" magazine.

REVELL: You know, and, Ali, I'd love to believe that. But, unfortunately, you know, when you look at what happened the last time there was a stimulus package, there was a short-term spike, it was over. People are really, really concerned about the housing market, their jobs. I think most of that economic stimulus package is going to be saved or used to pay down debt.

VELSHI: Andy.

SERWER: I'm sorry, Janice, I disagree with you completely. I think the economy is going to come roaring back stronger than ever, it just might not happen during this president's administration.

VELSHI: And maybe not just because of the checks that are going out. SERWER: Exactly.

VELSHI: All right, Roland Martin, you've been sitting patiently in Chicago listening to all of this. Is it true? Is this economy going to come back stronger than ever before because we're all getting checks in May and June?

MARTIN: No, it's not going to come back because of those checks. And I agree with Janice, I think people are going to save it. But you know what, Ali, here's the challenge to Senator John McCain, Senators Clinton and Obama. Why don't you stop giving speeches and the three of you go before your members and say, pass the FHA overhaul bill. It's been sitting there two years. They have not moved it. And so as opposed to saying, I'm going to do it in January, those three can come together now. That will effect the people right now who are hurt by the housing woes.

VELSHI: All right, thank you to you, Roland Martin. Thanks, Janice. Thanks, Andy. Thank you for joining us for ISSUE NUMBER ONE. It is the number one issue across America. We're back same time tomorrow, same place at noon. Let's take it over to CNN "NEWSROOM" now.

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